Stumbling and Mumbling

Author: chris dillow   |   Latest post: Thu, 2 Jul 2020, 2:09 PM


Conservative arguments for radical ideas

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In my previous post, I used a rhetorical device which I think leftists should copy. This is that we should use conventional, orthodox economics to reach radical conclusions.

The point here is that we don't persuade people by telling them that their worldview is wrong and by demanding that they change the ideas of a lifetime. We are more likely to succeed by showing them that their ideas are consistent with things they might not have considered.

Here are some examples of what I mean.

- Fiscal policy. We don't need MMT to argue for a significant fiscal loosening. Simple maths tells us that we can run big deficits and still see government debt fall as a share of GDP when real interest rates are negative, as they now are. And as Simon has said for years, the idea that we should use fiscal expansion when nominal interest rates are near zero is orthodox economics.

- The efficient market hypothesis. You don't need heterodox economics to show that this is wrong. Instead, you can point out that the first test of the EMH's corollary, the CAPM, found it to be false. That was conducted by those high priests of orthodoxy, Myron Scholes, Fischer Black and Michael Jensen. Their finding that defensive stocks do better than they should has been corroborated many times. And the other great challenge to the EMH - the out-performance of momentum (pdf) stocks - was first noted in that most conventional of publications, the Journal of Finance. Hayekk

- Worker ownership. This sounds like a radical idea. But it's not - and not just because law and accountancy practices are routinely owned by their workers. One inspiration for it comes from Hayek's important point, that central planning is impossible because economic knowledge is fragmentary and dispersed. Worker control, more than hierarchy, can mobilize such knowledge. Hayek's key insight - "you don't know what you are doing" - is a challenge to top-down managers.

- Rents. The idea that landlords' high rents are killing high streets and choking off economic growth might seem radical. But it's not. It was one of the many brilliant insights of David Ricardo, the man revered by orthodox economists for discovering, among other things, the theory of comparative advantage.

- The falling rate of profit. This idea (which is true) is of course associated with Marx, because it predicts that capitalism will become increasingly stagnant and crisis-prone. But again, it's not uniquely Marxian. The idea that diminishing returns would lead to a stationary state was, again, Ricardo's.

What I'm suggesting here is, of course, nothing new: I pray each night that I will never have an original idea. All these are versions of an immanent critique - showing that existing conventional ideas aren't necessarily as internally consistent as one might think, and might instead have radical implications.

This, I suspect was what Marx was doing when he argued that whilst the labour market looked like "a very Eden of the innate rights of man" things change when we go behind the factory door:

The can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but - a hiding.

Enlightenment ideas such as "Freedom, Equality, Property and Bentham", Marx showed, were not as compatible with capitalism as their advocates thought - something which remains true today.

Now, you might object that we need to do more than show merely that radical ideas are in fact quite compatible with conventional economics, and that we need to challenge it more. I agree: in particular, mainstream economics does a poor job of explaining inequality and exploitation.

However, if there is one thing we have learned in recent years, surely, it is that telling the truth does not always win arguments.

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